Committee on Finance. - Air Companies (Amendment) Bill, 1967: Second and Subsequent Stages.

Tuesday, 2 May 1967

Dáil Eireann Debate
Vol. 228 No. 4

Page of 42

Mr. Sweetman:I trust that when the Minister is introducing this Bill he will explain in ordinary language what section 2 means because it defies anyone else to understand it. It is a sentence of record length.

Minister for Transport and Power (Mr. Childers):I move that the Bill be now read a Second Time.

The purpose of the Bill is to enable the Minister for Finance to guarantee borrowings by Aerlínte up to a limit, including any repayable advances made by the Minister for Finance, of £18 million instead of £6 million as provided in section 5 (3) of the Air Companies Act, 1966.

The limit of £6 million in the 1966 Act was expected to meet the likely requirements of Aerlínte for about three years. In the event, this limit has now to be increased to enable the Minister for Finance to guarantee borrowings by the company arising from the decision to acquire two Boeing 747 aircraft for delivery in 1971. The purchase of these aircraft was not envisaged at the time of the enactment of the 1966 Act.

The estimated expenditure involved in the purchase of these two aircraft is $57.35 million, or about £20 million, of which some $15 million, or somewhat more than £5 million, is expected to be provided by Aerlínte from its profits and depreciation reserves, leaving about $42 million, or about £15 million, to be raised by borrowing in the United States. The US Export/ Import Bank have accepted in principle an application for the bulk of this loan the details of which are being negotiated with the Bank. It is envisaged that repayment of the loan would [507] be made over a period of about seven years commencing in 1971.

A condition of borrowing is that the Government guarantee repayment and in order to enable the necessary guarantee to be given the limit of £6 million laid down in section 5 (3) of the Air Companies Act, 1966, will have to be increased to about £15 million. In order to allow a reasonable margin for contingencies, the Bill provides that the new limit will be £18 million.

The new aircraft are being acquired to enable the company to maintain its competitive position on the North Atlantic. This is essential to safeguard the considerable State investment in Aerlínte. The Company has been operating very successfully with its present fleet of Boeing aircraft. The principal operators on the North Atlantic route have already placed orders for the Boeing 747, Jumbo Jet, and if Aerlínte were to continue to operate with its present fleet, its competitive position would be gravely prejudiced if not made untenable.

The Boeing 747 will have a passenger capacity of 435, or two and a half times that of the existing Boeing, and its capital cost, on a cost per seat basis, will be in line with that of the largest of the present Boeings. The real economic advantages of the new aircraft derive from the economies of scale and it is confidently predicted that its operating costs per seat-mile will be well below those for existing subsonic aircraft. Another advantage is that the freight-carrying capacity of the aircraft, even with full passenger load, will be about five times that of the present Boeing. These economic advantages are such that the acquisition of the Boeing 747 is considered to be a better proposition for the Company than the addition of aircraft of the existing type in order to meet the capacity shortage expected to arise within the next few years.

If, as is forecast in the industry, the lower operating costs of the 747 resulted in fare reductions, the company, which has achieved a substantial [508] operating profit for some years, might not break even, let alone show an operating profit with its present fleet against the competition of the 747. As regards traffic, Aerlínte estimate that, with the introduction of the two 747s into service in 1971, it will be possible to achieve an annual growth rate in passenger traffic of about 12 per cent, so that a total of about 500,000 passengers will be carried in 1975-76 as compared with 300,000 forecast for 1970-71 and 168,000 actually carried in 1966-67.

The advent of the Boeing 747 will create considerable passenger and ground handling problems at Shannon and Dublin Airports, where additional facilities will be needed for the handling of the passenger, baggage and freight loads involved. These problems, which will arise in any event at Shannon where other airlines will be operating services with 747s, are being actively considered by my Department and every effort will be made to ensure that the necessary facilities will be available at both airports in due time.

I wish to emphasise that a Government guarantee of repayment of borrowings by the air companies is given only in the circumstances, firstly, that the borrowings are necessary to finance essential capital projects which cannot be financed at the time from the companies' own resources and, secondly, that the companies will be able to repay these borrowings in due course from these resources. The companies can no longer look to the Exchequer for assistance in the form of further contributions of share capital. Because of the magnitude of the expenditure involved in the purchase of the Boeing 747 aircraft, Aerlínte have no alternative but to borrow. Favourable terms are available from the US Export/Import Bank as the aircraft are being purchased in the United States. The additional revenue which it is hoped to earn from the introduction of the new aircraft is expected to be sufficient to cover the financial commitments resulting from the loans now being negotiated and at the same time, yield a net profit on the company's overall operations. It is on this [509] basis that the Government have agreed to give the necessary guarantee. I recommend the Bill for the approval of the House.

Mr. P. O'Donnell:It goes without saying that we welcome this Bill but I wish that whoever drafted the Bill could have drafted it in a more intelligible manner as far as the one sentence in section 2 is concerned. I have had considerable experience reading sections of Bills and Acts but certainly I found great difficulty in understanding this particular section. Legislation by reference is always bad and it would have been much simpler to have taken the two sections referred to from the Principal Acts and re-enacted them in a new section here. It would thus have been more intelligible and more easily understood.

In so far as this Bill provides for the capital purchase of new aircraft, it is welcomed by the Fine Gael Party. This is the first opportunity I have had of wishing Dr. J.F. Dempsey all sorts of happiness in his retirement. This company was guided by him from its inception and no person can criticise in any way his handling of Aer Lingus since its foundation. Any compliments that have been paid to him by the Government and by others are very well deserved. I am glad that he has not altogether severed his connection with the company and will remain a director.

I wonder are we on the right track in buying aircraft now for delivery in 1971. Would it be that the aircraft which we are now purchasing for delivery four years hence may then be completely outmoded and out-of-date? I do not know and I am sure the Minister does not know. He has to be guided by his experts and I am sure they have advised him that this new Boeing 747 will not be outmoded by 1971. I sincerely hope it will not. I hope supersonic planes will not supersede the traditional aircraft which now operate on the Atlantic route. Subsonic aircraft have proved most successful but the Minister would require to be satisfied that supersonic aircraft will not supersede subsonic by 1971.

I note the Minister says that certain [510] improvements will be necessary both at Shannon and at Dublin Airports in order to take these new 747 planes. Therefore, I take it that these planes will fly direct to Dublin when necessary. I wonder then, how is the Minister going to prohibit still other transatlantic companies from using the facilities at Dublin Airport if we are going to enlarge and improve the airport to take these huge subsonic planes.

I note that by 1975-76 we shall have a half-million passengers on the North Atlantic route making Ireland one of their termini in their European sojourn. We forecast 300,000 by 1970-71, as compared with 168,000 carried in 1966-67. Very often these forecasts are completely wrong. I sincerely hope this one will not be and that the Irish airlines will get at least a fair share of the North Atlantic trade in the coming years. I am glad that Aer Rianta have taken the necessary steps to ensure that modern and up-to-date aircraft will be available.

The only thing that really worries us is that now in 1967 we must purchase these aircraft while not getting delivery until 1971. From what we read in the journals of the air companies and manufacturers of aircraft, year by year planes are becoming obsolete. I sincerely hope the Minister's forecast that these planes will not become outdated will prove correct and that subsonic planes will still have a useful part to play on the North Atlantic route vis-à-vis the supersonic plane in 1971 when we hope to get delivery of these planes.

We welcome the Bill in that it provides capital for the purchase of more up-to-date aircraft to assist our air company to procure its full share of the North Atlantic traffic.

Mr. Moore:I congratulate the Minister on the tremendous drive he has shown during his term in office in backing up our air companies to the greatest extent possible. If we are to maintain the place that Aer Lingus and Aer Rianta have carved out for us in world airways, we must be prepared to make sacrifices by providing the money these companies require to keep them in the forefront.

[511] I join with Deputy O'Donnell in congratulating the ex-Manager, Dr. Dempsey, on the wonderful example he gave of dedication to the service of these companies. Indeed, he has given an example of what a modern patriot should be. He is a man who, since he joined the company, gave his brains and his considerable intelligence and application to the expansion of these companies and the tremendous organisation that now exists is a monument to his ability. Because he gave us a place in the world of aviation backed by the Government at all times, we have something of which we can be proud. Nobody should feel prouder than Dr. Dempsey because of the great part he played in this enterprise. The Minister has always shown, in his approach to airline problems, that he is behind them 100 per cent. He has never failed to take courageous action to enable the air companies to maintain their position.

Purchase of aircraft puts a great burden on a small country like ours and a small company like Aer Lingus but we have no choice: either you go on and buy new aircraft as your competitors buy or you throw in the sponge. That would be unthinkable. It is a great pity that world airline executives would not put greater emphasis on safety measures rather than speed. Dr. Dempsey brought this home to a conference of airline personnel some time ago when he put forward the case of the ordinary man or woman who wished to fly and said that they were interested in safety not speed. That is true. However in this rat race in which we find ourselves we must not be left behind after the great efforts that have been made in this great industry. That is unthinkable.

Apart from carrying people on business and pleasure Aer Lingus offers some of the finest employment in the country, to flying personnel, technicians and many thousands of workers employed in one way or another. I take this Bill to be a token of the Government's determination that Aer Lingus and Aer Rianta will always have the best equipment we can afford. I know that this attitude of the [512] Government gives the Board of Aer Lingus tremendous confidence. They know they can go ahead with full Government backing in any plans they have to maintain their position. As the world shrinks more with the introduction of new types of planes and when travel becomes cheaper we may well see the Minister's estimate of the increase in the number of passengers greatly magnified. It is good to know that, among the State-sponsored enterprises—and we have many good ones —for sheer progress and prestige purposes and also for the fact that it gives highly paid employment to thousands of our people, our air company is something of which the country can well be proud.

Mr. T. O'Donnell:When I learned that Aer Rianta had placed orders for the Boeing 747, I was particularly glad because I had feared that in the transatlantic race and with the continuing development of new aircraft a relatively small airline like ours might not be able to keep pace with more wealthy competitors on the Atlantic route. The arguments in favour of placing orders for the Boeing 747 are unanswerable. It would be extremely unwise if Aer Rianta were to place further orders for the existing type of aircraft. Therefore, the company was left with no alternative, if it wants to maintain its improving position on the transatlantic route, but to place these orders for the Boeing 747.

I do not believe there is any great future in supersonic aircraft as passenger-carrying vehicles. As far as I can gather, aircraft manufacturers are beginning to turn over to the development of not just fast aircraft but of safer aircraft as well. One of the hazards of the airline business is that orders have to be placed for new-type aircraft well in advance. I am satisfied that Aerlínte have made a wise decision in placing orders for the 747 Boeings. However, we must not lose sight of the fact that the advent of the 747 on the transatlantic run will cause certain difficulties.

First of all, the economic utilisation of these aircraft, with two and a half times the carrying capacity of existing [513] aircraft, will necessitate vast intensification of sales promotion and so forth. One of the advantages of this aircraft is its suitability for carrying freight and it is my belief that there is quite a future for air freight and that certain developments in recent times have indicated that in the foreseeable future the relative cost of carrying goods by air instead of by sea will tend to level up.

The Minister referred to the advent of the 747 and the comprehensive passenger and ground handling techniques that will be necessary at Dublin and Shannon Airports. If I recall correctly, I tabled a question to the Minister some time ago asking him for details of the additional expenditure which would have to be incurred in making Dublin and Shannon Airports suitable for the handling of these Jumbo jets. I can be open to the charge of being parochially-minded in this, but I believe that with the advent of the larger aircraft, the case for making Shannon the transatlantic terminal will be very strong. It would be uneconomic and wasteful of money to duplicate facilities. The facilities will have to be improved and increased considerably to handle aircraft with carrying capacities of two and a half times the present Boeings. I believe therefore that it is difficult to sustain an argument for improving the facilities at both Shannon and Dublin Airports. It might well have to be looked at and serious consideration will have to be given to the question of whether there is a case for having facilities at two airports in this country to handle the larger jets, or whether we should develop the existing facilities at Shannon instead and have Shannon the transatlantic air terminal with feeder services to Dublin Airport.

These are thoughts which occur to one at this stage and which will have to be tackled in more detail later. At the moment I should like to compliment Aerlínte on the initiative it has shown. I wish to express my appreciation of the fact that Aer Lingus took the initiative and, that in order to keep pace with their wealthier competitors on the transatlantic run, placed orders for the 747 Boeings. We on this side of [514] the House, as Deputy P. O'Donnell said, welcomed the Bill. We hope that Aerlínte in the future, whether faced with the introduction of bigger subsonic or supersonic aircraft, will be able to keep pace with the growing development in aviation. Personally I have no doubt that the company will be able to maintain the progress they have been making.

Mr. Coogan:Briefly I wish to support what my colleagues have said in welcoming the Bill. We have reached the position of no return in the matter of aviation. We must just carry on because if we stand still, we cannot carry on. The competition is so fierce that we must adjust ourselves to the situation because on the transatlantic route, we are in the stream, and I think we should try to collect everything that is going in that air stream. I wish again to lend my full support to the measure.

Minister for Transport and Power (Mr. Childers):I should like to thank Deputies for their favourable reception of the Bill. I thought I would wait until the Estimate for my Department to pay a very well deserved tribute to Gerry Dempsey, but as Deputy O'Donnell thought fit to speak of his career, I should like to join with him in paying a tribute to the splendid work of Dr. Dempsey for his clear grasp of transport requirements, his business efficiency and his belief in the capacity of the Irish people to engage in highly technical services requiring tremendous efficiency and a very high standard of maintenance. All have redounded to the prosperity of the country. I hope Gerry Dempsey will enjoy his retirement, though as Deputies know, he is taking a part in other ventures which I hope will help the growth of our economy. The last achievement of his was the productivity agreement for certain classes of workers in Aerlínte in Dublin. That, in itself, is of very great interest, marking a step in the development of greater efficiency in the movement of demarcation practices in the complicated work of aircraft. It was very much in his mind, I know, when it came to the point of his retirement.

[515] The questions put on this measure are very natural. I do not see any different kind of plane, in the fundamental sense, from the subsonic aircraft coming on the market between now and 1971. The efficiency of the jet engine has enormously increased during the past ten years; so has the efficiency of the aircraft, and other than this type of jet engined plane, improved and made more efficient as the years go by, we do not see anything coming on the market so quickly that it would supersede the 747 in the near future. The next step will be supersonic flight at from 1,500 miles to 2,000 miles an hour. Aerlínte have taken option on two of the aircraft but American supersonic aircraft will be flying later than the 747. The next phase after that will not be, I believe, until 1985 or 1990, when we shall have the hypersonic plane which will fly at such speeds that it will take people from Shannon to New York in the space of a quarter of an hour.

Mr. T. O'Donnell:I should not like to travel on it.

Mr. P. O'Donnell:I do not think it will worry us, either the Minister or me.

Mr. Childers:All the other companies have ordered 747 Boeings, knowing that it is an order given a long time in advance. I think we are right in providing the necessary guarantee to enable Aerlínte to order these aircraft. The alternative to them would be to purchase Boeing 720s or Boeing 707s. The operating costs of the 747s are reckoned to be as much as 25 per cent below those of the present Boeing aircraft. It is likely there would be a fare reduction, as I said already, because of the economies in scale which definitely apply to these aircraft.

Some questions were asked about the changes which will be necessary in the two airports. We are not absolutely certain what those changes will be. We have had discussions with Aerlínte and also with the Boeing company, and my Department are engaged in discussions at the present time with people expert in these matters. We know very definitely [516] that there will have to be changes in passenger-handling facilities and cargo-handling facilities. According to statements we have had from the Boeing company, there is not likely to be any great strengthening of the runways. Although the aircraft will be very much heavier, there are more landing wheels and this will help matters. The likely changes will emerge when the aircraft finally come into production. I might add that an any event there will have to be very big changes in both airports consequent on expanding traffic.

Senator Garret FitzGerald prepared a projection of the likely growth of transatlantic passengers, some time in 1957 or 1958 and the projections he made then, I am glad to say, have been grossly exceeded. If his projections had been attained and not exceeded, it would still have meant that Aerlínte were fully justified in buying jet aircraft and in going ahead with expanding their services. The estimations have been very much exceeded and Aerlínte operating profits, which of course are immediately turned over to depreciation and reserves are, as everybody knows, greater than could ever have been imagined.

I think I have dealt with all the points which have arisen and which have been made in the course of the debate.